Key Aspects of Macroprudential Policy - Background Paper
Policy Papers, June 10, 2013
Source details
- Canonical URL
- Key Aspects of Macroprudential Policy - Background Paper
Other formats
Bibliographic details
- Published: June 10, 2013
- Series: Policy Papers
Summary and Purpose
- The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks.
- The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising.
- The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy.
Framework and Design (Basel III)
- Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer).
- In good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.
Key Observations
- Building capital buffers during periods of rising systemic risk is important because of feedbacks between banking sector losses and the real economy.
- Time-varying capital requirements (CCB) complement minimum capital requirements and time-invariant conservation buffers under Basel III.
Content in this bundle
- Key Aspects of Macroprudential Policy--Background Paper; IMF Policy Paper; June 10, 2013